1. Field of the Invention
The subject invention relates to financial management techniques and, more particularly, to a system and method for objectively investing a lump sum amount to provide installments at periodic intervals, with a predetermined level of confidence.
2. Description of the Related Art
Investors, including even experienced or professional investors, often make investment selections on based on intuition or, at best, a subjective synthesis of accumulated information. This is true even though the investment decisions are intended to be predicted on the investor's willingness to accept, or aversion to, risk of loss of investment capital. That is, although classes of investment vehicles can be qualitatively ranked according to the risk they appear to present, there exists no known practicable technique for quantitatively and objectively admitting risk as a factor that is informed by quantified consideration of the investor's tolerance to that risk. Therefore, it is desirable to provide investors with a technique for making investments with a predetermined level of confidence regarding the return that can be expected. As an exemplary application, it is eminently desirable that the technique enable investors to construct an investment portfolio with a view to receiving periodic payments in retirement. Many investors' needs would be well suited by the ability to allocate portions of a lump sum, such as an inheritance, or a retirement distribution, among disparate investment instruments. With respect to each portion, the investor should be able to know, with a predetermined level of confidence, that each portion invested will yield a stated return at a given time in the future. Although investors almost universally understand that in order to realize increasing investment returns, one must be willing to assume greater risk degrees, the effects of risk/return decisions have not heretofore been susceptible of precise articulation. Consequently, investors have been compelled to approach the inherent balancing requirement with little objective or quantitative guidance. As a result, investors have not been required, or enabled, to quantify their tolerance to risk and to confront the manner in which risk-driven investment selections directly affect the probabilistic investment returns. Accordingly, investment selections often present real risk/return relationships markedly different from that which the investor may intuit.
Therefore, what is desired is an approach to investment selection that objectively and quantitatively incorporates risk as a determinant in investment selections and, moreover, enables an investor to comprehend, objectively and quantitatively, the correlation between risk and the expected returns of available investments.